A world built on trade

LONDON EYE

By Stephen Lillie

International trade has been with us for thousands of years. Chinese trade with the Philippines has been strong for centuries. Even further back in time, Cyprus was at the heart of a thriving Mediterranean trading system well before the Roman Empire introduced an early forerunner of the European Single Market.

The history of the UK can be traced through trade. As an island nation, trade was the life blood of British development. The great debates over the Corn Laws in the early 1800s captured the tension between trade liberalisation versus protectionism and whether the interests of the majority (best served by free trade) would win over the interests of the powerful (producers of corn who wanted higher prices). Britain and others opting for trade in the 19th century helped bring about the great leaps in development.

Trade remains a controversial issue. However, economic theory and historical evidence tells us that open markets allow countries to specialise, to use their comparative advantages and deliver savings for consumers. And there is strong correlation between the openness of economies and development. Of particular relevance to the Philippines is that the great development we are seeing in Asia would not have been possible without globalisation, trade and liberalisation.

Countries such as Singapore best represent the way trade has developed. Singapore’s trade is four times larger than its GDP, reflecting the fact that countries and companies rely on global supply chains. Many people assume that manufacturing is now only done in low-labor-cost economies. Airbus and the UK tell a different story. Airbus has a global supply chain, including wings manufactured in the UK and aircraft assembled in China, France and elsewhere. The UK, renowned for financial services, remains one of the world’s biggest manufacturers and companies like Jaguar Land Rover find their products in greater demand than ever before.

The 20th century has seen a great rise in liberalisation and a reduction in protectionism. High points included the creation of the World Trade Organisation. Other examples include the European Union’s Single Market of over 500 million people and NAFTA in North America. The EU and India are negotiating a free trade deal. And other agreements are popping up all around the world, including in ASEAN. All this has helped global trade to grow exponentially during the past two decades. A 2009 study by the Philippine Chamber of Commerce estimated that a free tradeagreement between EU and ASEAN could boost Philippine GDP by an additional two percent. Free trade is not, as sometimes depicted, about opening up developing country markets, it is about allowing developing countries to reap the benefit of access to the biggest and most advanced economies.

However the growth of free trade is not inevitable. The economic problems of the 1930s brought about a revival of protectionism. In tough economic times, a natural reaction is to conserve and protect. But this is precisely the wrong economic policy. Trade is what will deliver growth and is why my government is seeking to ensure we are amongst the best and most open countries for trade and investment. In the tough times the global economy is facing, trade and more free trade is the answer, not the problem.

(Stephen Lillie is the British Ambassador to the Philippines)